The decision of Ho Ching, longstanding chief executive of Temasek Holdings, to hand over to Dilhan Pillay on October 1 will likely lead to an evolution rather than revolution of emphasis on investing into emerging markets and venture capital, particularly in the technology, healthcare and food investments spaces, say industry veterans and observers. It could also herald a more flexible managerial structure. 

Ho, the wife of Singaporean prime minister Lee Hsien-loong, has overseen major changes to Temasek's investment portfolio since becoming chief executive in 2004 (see box). The 67-year-old has insisted she will not stay on as board director after stepping down but did not rule out staying on as an adviser.

Dilhan Pillay

The 57-year-old Pillay is a sensible successor, having held several positions during his decade at Temasek, including head of investment, portfolio management and enterprise development groups. He was appointed CEO for Temasek International since April 2020 and is set to retain the role.  

Pillay’s influence in helping push Temasek into private investments in tech, life sciences and health in recent years, together with his drive to incorporate sustainability into the organisation’s processes, led AsianInvestor to name him as one of our most influential figures in institutional investment over the past 20 years, in our 20th anniversary edition last year.

Observers say it will be interesting to see whether Pillay, once he is in charge, loosens Temasek's highly topdown decision-making approach. An investment industry veteran familiar with the workings of the fund told AsianInvestor that this approach ensured the organisation retained strong investing discipline and focus but may have also left it prone to inflexibility. 

“There is an outstanding question as to how much of Temasek's investment strategy has been successful, with some big write-downs at times, and a very opaque investment performance measurement framework,” said the executive.

He noted that Temasek has introduced a portfolio strategy team in recent years to “put some capital markets logic behind the allocations”, but questioned how much influence this team has enjoyed, given the managerial structure.

Temasek's portfolio breakdown as at 31 March 2020.

VC VISION

It is likely that Pillay will continue guiding Temasek's focus on international diversification, venture capital and technology investments, both for its own sake and for Singapore. 

The fund now invests 76% of its assets outside of Singapore, especially across Asia and in China and India, while also adding assets in the US and Latin America. To support this it has opened offices in Mumbai and Beijing (2004), Shanghai (2005), Sao Paulo (2008), Chennai (2009), London (2014) and San Francisco (2017).

It has especially targeted venture capital investments in key growth sectors and promising start-up companies, said Brian Baker, senior advisor at China Pacific Insurance Company Investment Management.

"Temasek has become an influential leading government-linked investment company and a sought-after investor by start-up companies and an investment partner by other venture capital investment companies (both private and government-linked)," he told AsianInvestor.

The investment veteran argued the VC-focused approach is largely due to the fact Temasek is one of several investment entities of the Singapore government. While the Monetary Authority maintains liquid reserves and GIC acts as a multi-asset investor, Temasek is Singapore Inc's private equity fund, he claimed.

Accurate or not, Temasek has been very busy in VC. Indeed, since 2017 it has executed a third of all deals by sovereign wealth funds, notes Javier Capapé, director of sovereign wealth research at IE University. It averages more than 25 deals per year in start-up companies.

"This is a tremendous level of activity, even for VC-focused managers," he told AsianInvestor

Several of these investments have been into technology, another area of focus for the fund over several years. To support this it hired Jonathan Allaway to its management team as chief technology officer in 2018 and then appointed Michael Zeller as head of AI strategy and solutions in July 2020.

"Temasek has been at the forefront of tech investments as a SWF and their performance has been especially strong in China and US markets. The Kuaishou IPO (in which Temasek and nine other cornerstone investors committed a $2.45 billion into the Chinese social media firm) is the most recent evidence that Temasek is one of the strongest global private equity tech investors," said Herston Powers, founder and managing director of Singapore-based VC 1982 Ventures.

Powers argues that Pillay would be wise to prioritise further VC investments across healthtech, cyber security, foodtech and food security, along with cultivating its fintech ecosystem to attract fintech companies and talent to Singapore. 

Capapé added that the new CEO should ensure the sovereign wealth fund geographically invests more into Africa and add exposure to India and other emerging Asian economies over the coming decade.

TRYING TIMES

Ho Ching will end up having been Temasek’s chief executive for 17 years, during which the fund has greatly changed, both in investing make-up and size.

Back in 2002 Temasek had over half (52%) of its estimated net portfolio value of S$77 billion in Singaporean state companies, whereas at the end of March 2020 76% of its net portfolio value of S$306 billion was in non-Singaporean public businesses.

Ho has endured some difficult times amid this growth, Indeed, in February 2009 Temasek said she would hand over to former BHP Billiton chief executive Charles 'Chip' Goodyear on October 1 of that year. The handover followed Temasek losing 30% of the market value of its assets after making major investments into financial companies amid the global financial crisis.

Ultimately, the handover plan fell through in July 2009. Temasek and Goodyear blamed “differences regarding certain strategic issues that could not be resolved”, but news reports suggested Goodyear was frustrated by Temasek’s bureaucratic structure and that Ho was reluctant to leave. 

Her decision to finally step down this year follows another period of relatively weak results. In July 2020 Temasek reported its total portfolio shareholder returns for the year to March 2020 dropped 2.28%, largely because of the impact of Covid-19 on asset valuations. Its total shareholder return over 10 years stood at 5%, down from 9% a year earlier.   

"In that context, the move comes at an appropriate time. Mr. [Dilhan] Pillay is 10 years younger to Ms. Ho, seems to be well respected throughout the organisation and does not have any conflict of interest in 'Singapore Inc',” said Diego López, managing director of advisory Global SWF. 

"2020 was a difficult year for the country, with the GDP dropping by 6% (compared to the world’s -4.4%) and with Temasek and GIC having to support the domestic recovery...So, the change in Temasek’s leadership may be well received by the citizenry," he added.

Joe Marsh and Richard Morrow contributed to this article.

Article updated to clarify the level of Temasek's deal activity among sovereign wealth funds.